MATT COOPER: Without the right plan Shannon Airport’s future may be grounded

Friday, November 16, 2012

By Matt Cooper

BROADCASTER Terry Wogan can be heard on a radio advertisement these days extolling the virtues of using Shannon Airport as a departure and arrivals point for travellers out of and into the West of Ireland.

It is a gesture of loyalty presumably towards his old area by the Limerick-born British resident, as much as it conveys any financial rewards upon him. You have to wonder how effective it will be, however. Shannon Airport is having big problems that will not be solved by an advertisement voiced by Limerick’s most prominent member of its foreign-based diaspora.

Those problems were demonstrated vividly by the recent decision of the Kerry Group to locate its new 800-plus jobs research and development centre in Kildare. The decision to set up this facility in Ireland is greatly welcomed: it seems that Ireland’s most successful food company had been offered plenty of incentive to locate in Holland. But why, if staying in its native country, did it chose Kildare instead of Kerry, or another Munster location?

The answer from the Kerry Group’s director of corporate affairs, Frank Hayes, when I put this to him on radio, was that Kildare benefited from its proximity to Dublin Airport. Surely Shannon Airport (or Cork Airport) provided the services that Kerry requires for both its own executives and its customers? Apparently they don’t. They need the “connectivity” that Dublin provides.

The Kerry Group has been a big supporter of both Shannon and Kerry International Airport at Farranfore in the past, but there is only so much support it can offer without damaging its growth as a major multi-national company.

The overall decline in business at the airport has been shocking. Five years ago the airport had a throughput of 3.6m passengers a year. Now it is 1.6m. Michael O’Leary of Ryanair may be a vested interest when offering comments, in that his airline’s withdrawal from the airport in a row over fees was a major contributory factor to this collapse, but he knows a bit about these things. He maintains that an airport with less than 2m passengers per year is not viable.

It is hard to see what Shannon can do to reverse the trend. It had become too reliant on anti-competitive stunts, such as the Shannon stopover that required all transatlantic flights to touch down on both legs of a return journey, something that was not abolished entirely until 2008. It had engaged in an ethical by-pass in becoming the staging post for the movement of US troops to Iraq and Afghanistan. Last year 250,000 US troops passed through Shannon but only 45,000 troops did so in the first four months of this year, a decline of 46% on the same period in 2011. This business is going to come to an end anyway with US President Barack Obama committed to a gradual withdrawal of troops from Iraq and Afghanistan.

It looks as if Shannon Airport is dying. Its losses are running at over €8m annually, its debts more than €100m.

The battle is not lost yet, however. Earlier this year the Government announced that Shannon is to be set free from the DAA and can leave an estimated €100m in debts with its old master. A “steering group” was established to work out how to create a new State agency for Shannon that would take control of the airport and engage in other “commercial” activities to “drive tourism and economic growth” in the area.

Final reports on the new structures for the airport, Shannon Development and mid-west IDA and Fáilte Ireland services are well advanced, apparently, and may be produced by the end of the month.

It seems likely that plans will be proposed for the use of the large industrial landbank that surrounds the airport, to create new employment.

There has been success in the past. It was in Shannon that the now ubiquitous duty free shopping airport shopping originated, since copied in much of the world. Shannon was the hub from which the once mighty GPA aviation leasing company run by Tony Ryan grew (before it too collapsed under the weight of excessive debts). With some bravery and imagination Shannon could be forced not just in its own right but, more importantly, for the region it serves, a hub for international air travel, a home for aviation finance and aircraft repair, creating well paid jobs and drawing money into the local economy.

But how will that happen? The reports are awaited with interest because it was admitted earlier in the year that the department of transport had no financial structure to propose for a new body that will remain in State control and that therefore, because of EU rules, cannot receive State capital in the absence of outside finance.

There has been little or no debate as to whether or not it would be better for Shannon to be sold to the private sector, to allow it to go into real competition with Dublin and Cork Airports.

The DAA has said that it approves of Shannon being an “independent” operation, but it also wanted it to remain under State control. How truly independent can Shannon be in those circumstances, with a common owner to Dublin in the State? Imagine what a truly independent, commercial owner might do in an effort to earn a return at Shannon, by generating a much larger volume of traffic. I suspect it might slash facility prices to the airlines, reckoning that greater turnover from shopping and car park use would arise from the enhanced number of passengers additional flights would bring. It would likely invest further in facilities that might attract aircraft manufacturers to conduct European repairs at Shannon, the only airport in the country that has a runway long enough to handle fully-laden Boeing 747s. Nor is it subject to any night-time flying restrictions.

IT has pre-clearance for the US immigration: imagine the potential to market it as an exclusive hub for private aircraft from Asia and the Middle-East on their way to the US, if in private hands? I suspect such initiatives will not happen under State ownership because the Department of Transport will not allow any radical initiatives that might be perceived as having the potential to do financial damage to Dublin.

The Government talks of the DAA being required to boost tourist numbers by attracting a greater number of flights, but how much work has been done to drop prices at Dublin and Cork to attract greater volumes? The debt mountain to be paid at DAA — not far short of a billion euro — is such that it does want to take chances about reducing its income. If a private competitor at Shannon dropped its prices Dublin would be forced to do at least some of the same. Yet there has not been any debate that I’m aware of about Shannon being sold or even given away to private ownership. The arguments to be date have been about structures, about reassigning the staff among the different agencies that are being amalgamated and deciding who gets the responsibilities for different assets and their financing, and liabilities.

Maybe we’ll be surprised in the coming weeks. But even if the end of month deadline for the provision of reports is met, what are the chances that the best recommendations will be offered, that they will be approved or implemented? Terry Wogan can make all sorts of appeals to people to use the airport but if it does not supply the flights to and from the destinations that people want, and at attractive prices, then the airport’s best days, like the broadcaster’s, are well behind it.

* The Last Word with Matt Cooper is broadcast on 100-102 Today FM, Monday to Friday, 4.30pm to 7pm.